Signs of a Slowdown?
Economists and businessmen continue to look at data for signs of an economic slowdown, which unavoidably will come sooner or later. Internationally, the Chinese economy’s growth rate is falling, while European countries — excluding Germany and the U.K. — have not shown any economic strength over the last 20 to 30 years and continue to falter as well.
The U.S. is significantly impacted by economic events in other regions of the world. After all, American exports of goods and services to other countries total more than $2.5 trillion — more than 10% of the nation’s total GDP. Therefore, a slowdown among major U.S. trading partners is obviously bound to impact the American economy. Parenthetically, U.S. imports total more than $3.1 trillion annually; the difference between imports and exports is the $600 billion annual trade deficit.
Shipments from U.S. manufacturers have fallen for the last four months through January, when they declined to $503 billion; this is still 3% higher than they were a year before. New orders, on the other hand, have been relatively stable over the last four months, but they stopped increasing.
Shipments increased last month for only three products; heavy duty trucks,up 7% for the month, total machinery, up 0.8%, and, curiously, household appliances, up 1.1%. This is curious because appliance shipments had fallen steadily from 2016 through the middle of last year.
Compared to last year, shipments of only two product categories are down. The value of Petroleumproducts, including coal, is 6% below January 2018 — not surprising, given that crude oil prices were roughly 20% lower in January than a year before.
The other category is automobilemanufacturing that, as we know, has suffered because of consumers’ preferences shifting toward light trucks and SUVs. Shipments for the latter types of vehicles are 21% above last year.
Strong Jump in Sales of Existing Homes
In a totally unexpected spike, sales of existing homes jumped a remarkable 11.8% in February to reach an annualized rate of 5.51 million units. This is the highest sales pace in nearly a year. In fact, February sales match exactly the rate last seen in March 2018.
But more remarkable yet is the nearly 12% jump in sales. Monthly changes of this magnitude have occurred only six times over the last 50 years — and just twice this century. Double-digit increases are very rare indeed.
It is difficult, if not impossible, to attribute this increase to a single factor. Of course, lower mortgage rates, which have been falling since November, have made home purchasing more affordable for more people. Also, consumer confidence improved in February. The University of Michigan’s Index of Consumer Sentimentrose 2.9% in February and, in fact, the index has risen a further 4.3% this month (although the current jump naturally would not have impacted February’s sales).
Additionally, consumers’ incomes continue to improve. Hourly wages for the 12 months ending in February rose 3.5%, which is significantly higher than the annual average increases seen in the previous eight years between 2010 and 2017.
Modest Change on Mortgage Rates
Not surprisingly, since the Federal Reserve Bank said last week that it would not raise interest rates this year, the mortgage rate accordingly fell further to 4.28%. Concern is rising that the country might be heading into an economic slowdown, and Fed Chair Jerome Powell is emphatically deciding not to make any policy move that could accelerate any weakening.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single-Family Starts. This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing-Home Sales. These data are issued monthly by the National Association of Realtors and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $500,000 and higher. The data are released quarterly by the U.S. Department of Commerce and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance-Store Sales.This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers.
We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
